This presentation about Accounting Principle. its include
Nature of Accounting Principles
Accounting Concepts
Business Entity Concept
Effect of adopting Business entity Concept
Money measurement Concept
Cost Concept
Going Concern Concept
Dual Aspect Concept
2. Nature of Accounting Principles
Accounting principles are general guidelines to establish
standards for sound accounting practices and procedures in
recording and reporting financial performance and status of a
business.
Derived from experience and reason.
To ensure uniformity and easy understanding of accounting
information.
These principles can be classified into two categories
(i) Accounting concepts;
(ii) Accounting conventions.
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3. Accounting concepts are defined as basic assumptions on
the basis of which financial statements of a business entity are
prepared.
They are used as a foundation for formulating various
accounting methods and procedures for recording and
presenting the business transactions.
An assumption is something which is accepted as true which
may not be true in real life.
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Accounting Concepts -
4. Business Entity Concept -
For the purpose of accounting, it is assumed that the
business has a separate and distinct entity from its
owner(s) and all other entities having transactions with it.
Transactions between owner and business are recorded in
the accounting books – Capital Ac and Drawings A/c.
If this assumption is not followed, the results (profits or
losses) of the business will not be true and fair and the
financial status of the business may not be correctly
measured.
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5. Only the business transactions are recorded and
reported and not the personal transactions of the
owners.
Income or profit is the property of the business
unless distributed among the owners.
The personal assets of the owners or shareholders
are not considered while recording and reporting the
assets of the business entity.
Effect of adopting Business Entity Concept
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6. Money Measurement Concept -
According to this assumption all business transactions should
be recorded in terms of money, i.e., currency of the country.
Only such transactions and events which can be interpreted in
terms of money are recorded.
Events which cannot be expressed in money terms do not find
place in the books of account though they may be very important
for the business.
The system of accounting treats all units of money as the same
irrespective of their time dimension. 6
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7. Cost Concept or Historical Cost Concept
According to this concept, the various assets acquired by a
firm should be recorded on the basis of the actual amounts
involved or spent.
If nothing has been paid for acquiring an asset, it would
not be shown in the accounting books as an asset.
The cost concept does not mean that the assets will
always be shown at cost. The fixed asset will be recorded
at cost at the time of its purchase but it may systematically
be reduced in its value by charging depreciation.
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8. Going Concern Concept
▪ According to this concept, it is assumed that the business
enterprise is a continuing one, not on the verge of closure.
Business transactions are recorded from this point of view.
▪ On the basis of this concept, a clear distinction is made between
assets and expenses.
▪ Because of this concept that fixed assets are valued on the basis
of cost less proper depreciation.
▪ If it is certain that a business will continue for a specified period,
then the accounting records will be kept on the basis of expected
life of the business 8
9. Dual Aspect Concept
▪ According to this principle, every transaction
has two aspects and both the aspects are
recorded in the accounting books. This concept
is the basis of double entry system or modern
accounting.
▪ The following accounting equation is drawn on
the basis of this principle: Assets = Capital (or
Owner’s Equity) + Liabilities (Claims of outsider) 9